Barclays Bank International Ltd v Levin Brothers

Federal Court of Australia|1997-12-19|Before: Finkelstein J, Davies J

REASONS FOR JUDGMENT This application, brought under the Administrative Decisions (Judicial Review) Act 1977 (Cth) and under s 39B of the Judiciary Act 1903 (Cth), seeks orders of review with respect to three notices issued by a Deputy Commissioner of Taxation under s 218 of the Income Tax Assessment Act 1936 (Cth) ("the Assessment Act"). At the hearing, Mr RA Conti QC and Mr DKL Raphael of counsel appeared for the applicants. Mr AH Slater QC and Mr SJ McMillan appeared for the Deputy Commissioner of Taxation. The National Australia Bank was excused from attending. Section 218 of the Assessment Act provides inter alia: "218(1) The Commissioner may at any time, or from time to time, by notice in writing (a copy of which shall be forwarded to the taxpayer at his last place of address known to the Commissioner), require - (a) any person by whom any money is due or accruing or may become due to a taxpayer; (b) any person who holds or may subsequently hold money for or on account of a taxpayer; (c) any person who holds or may subsequently hold money on account of some other person for payment to a taxpayer; or (d) any person having authority from some other person to pay money to a taxpayer, to pay to the Commissioner, either forthwith upon the money becoming due or being held, or at or within a time specified in the notice (not being a time before the money becomes due or is held) - (e) so much of the money as is sufficient to pay the amount due by the taxpayer in respect of tax or, if the amount of the money is equal to or less than the amount due by the taxpayer in respect of tax, the amount of the money; or (f) such amount as is specified in the notice out of each payment that the person so notified becomes liable from time to time to make to the taxpayer until the amount due by the taxpayer in respect of tax is satisfied, and may at any time, or from time to time, amend or revoke any such notice, or extend the time for making any payment in pursuance of the notice. 218(2) Any person who refuses or fails to comply with any notice under this section is guilty of an offence. ... 218(4) Any person making any payment in pursuance of this section shall be deemed to have been acting under the authority of the taxpayer and of all other persons concerned and is hereby indemnified in respect of such payment. ... 218(6A) Where, but for this subsection, money is not due, or repayable on demand, to a person unless a condition is fulfilled, the money shall be taken, for the purposes of this section, to be due, or repayable on demand, as the case may be, to the person notwithstanding that the condition has not been fulfilled." Similar provisions appear in s 74 of the Sales Tax Assessment Act 1992 (Cth) and in s 1233 of the Social Security Act 1991 (Cth). An analogous provision appeared in s 38 of the Sales Tax Assessment Act (No 1) 1930 (Cth). One of the subject notices, dated 26 August 1997 and directed to the second respondent, the National Australia Bank Ltd, as a person holding money on account of the second applicant, Australia Aircraft Sales (NSW) Pty Limited, required the Bank to pay to the Commissioner, "so much of that money as is sufficient to pay the amount of $52,125,547.60 or the whole of the money if it is equal to or less than amount". An accompanying note identified two bank accounts held in the name of Australian Aircraft Sales (NSW) Pty Limited in the Bank's New York branch. A second notice of the same date also directed to the National Australia Bank Ltd was in similar terms. An accompanying note identified an account held for Australia Aircraft Sales (NSW) Pty Limited in the Bank's branch at 300 Elizabeth Street, Sydney and another account held for that taxpayer in the Bank's branch at 58 Pitt Street, Sydney. The third notice, also dated 26 August 1997, was to the same effect but the named taxpayer was the first applicant, Mr John P. Conley, and the sum specified was $67,242,842.05. An accompanying note identified an account in the name of Mr Conley in the Bank's Edgecliff branch. It is not in dispute that the amounts standing to the credit of the subject accounts were denominated in United States dollars. There is no evidence as to how or why the amounts standing to the credit of the accounts came to be deposited into those accounts. There is however in evidence a copy of a brochure which sets out the terms and conditions of a "National Foreign Currency Account - Onshore". Such an account is one on which interest is paid on the daily credit balance. The terms of the account are, inter alia:- "1.1. You must deposit at least Five Thousand United States dollars (USD 5,000) to open a National Foreign Currency Account ("the account") in United States dollars. Accounts may be opened in other foreign currencies acceptable to the Bank with the equivalent of 5,000 United States dollars. You may find out from any branch of the Bank the equivalent amount in any other foreign currencies and the currencies acceptable to the Bank from time to time. The account will be kept in the foreign currency you choose when you open it and this currency will be the currency of account. 1.3 You may withdraw from the account at any of the Bank's branches, subject to:- (a) you providing suitable identification, and (b) any disruption to or delay in the banking system or international currency markets. The Bank will pay you the balance of the account and any interest on that account in the currency of the account, unless otherwise instructed by you or unless the currency of the account is no longer available. If the currency of the account is no longer available, then the Bank may nominate the currency with which to pay you the balance of the account and the interest on the account". The brochure also describes the terms of a "National Foreign Currency Term Deposit". There is no evidence that the onshore accounts are Term Deposits. I assume that they are current accounts. There is also in evidence a fee schedule relating to the New York accounts. The fee schedule sets out options with respect to non-interest bearing accounts. It may be inferred that the New York accounts are current accounts and that payment would be due in United States dollars. It has long been established that the term "money" may, in the context in which it is used, denote more than mere cash or notes which are legal tender. In Manning v Purcell (1855) 7 DM&G 55, it was held that two credit balances at a bank, one a current account and the other a deposit account bearing interest, had both passed under a bequest of "all my moneys". That authority was followed by Farwell J in In re Collings [1933] 1 Ch 920, where his Lordship said at 927: "... I am bound by the earlier decision of the Court of Appeal, which I think goes to decide that where there is a gift of moneys, even used in its strict sense, the term includes moneys not only on current account at the bankers, but also money on deposit." The term "money" has an even wider connotation when it is used to refer to a debt, as it is in s 218, where the expression "any money due or accruing" is used. As Jarman on Wills, 6th ed at 1301 states: "`Money due (or owing) to me' will also include money at a bank (Carr v Carr, 1 Mer, 541, n.), money on deposit at a bank (Re Derbyshire [1906] 1Ch 135), moneys under a policy on the testator's own life (Petty v Willson, LR, 4 Ch 574), and damages to which he was entitled, though the amount was unascertained at his death (Bide v Harrison, LR, 17 Eq 76)." In the present context, the term "money" has a wide meaning. Section 218(6A) provides that money which is not due or payable unless a condition is fulfilled is to be taken for the purposes of the section to be due or repayable on demand. The obligations of the Bank are monetary obligations. As Dr FA Mann's The Legal Aspect of Money, 4th ed, states at 63: "Monetary obligations primarily exist where the debtor is bound to pay a fixed, certain, specific, or liquidated sum of money." At 190, the author states, when speaking of foreign currency: "Where the payment of a sum of foreign money is promised, a monetary obligation exists, because the foreign money functions as money, the legal character of the obligation being inherently identical with that of an obligation to pay a sum of domestic money."

This principle has had application in Australia at least since the Currency Act 1965 (Cth), sections 9 and 11 of which authorised transactions to be entered into "according to the currency of some country other than Australia" and payment to be made in that currency. In Chapter VII of his work, Dr Mann discusses the difference between foreign money as money and foreign money as a commodity. At 189-90 the learned author concludes: "The only conclusion which can be drawn with safety is that the working principle stated above must be adhered to: foreign money is money where it functions as such; it is a commodity where it is an object of commercial inter-course. In the vast majority of circumstances, however, the former will be the case and Brandon J. (as he then was) cannot be criticized for stating categorically: (The Halcyon the Great [1975] 1 WLR 515, 520) the term 'money' includes 'money in foreign currency as well as in sterling'. And where the words 'money' on the one hand and 'goods', 'commodity', 'merchandise' on the other hand appear in a statute, it is a matter of interpretation whether foreign money is included in the former or the latter phrase". As can be seen from this passage, the meaning conveyed by the term "money" must depend upon the context in which the term is used. In Miliangos v George Frank (Textiles) Ltd [1976] AC 443, it was held that an English Court was entitled to give judgment for a sum of money expressed in a foreign currency, where the money of account of the monetary obligation was that of a country other than the United Kingdom. Subsequently, in Choice Investments Ltd v Jeromnimon Midland Bank Ltd, Garnishee [1981] 1 QB 149, it was held that a sum standing to the credit of the judgment debtor in a United States dollar account was a debt which could be the subject of a garnishee order, notwithstanding that the judgment debt the recovery of which was sought was expressed in sterling. At 157 Lord Denning MR, with whom Brightman LJ and Griffiths JJ agreed, enunciated the following procedure by which the conversion from the foreign currency into sterling should occur:- "(1) So soon as reasonably practicable after the time of service of the order nisi, the bank shall ascertain, at its then normal buying rate of exchange against sterling, the amount of the foreign currency balance of the judgment debtor as would, if converted at that rate, produce an amount equal to the sterling judgment debt and costs, and that amount of foreign currency as ascertained shall be attached. (2) So soon as reasonably practicable after service of the order absolute, the bank shall purchase, at its then normal buying rate of exchange against sterling, the attached amount of foreign currency, or so much thereof as will by the application of that rate produce the sterling judgment debt and costs, and pay the same into court or to the judgment creditor. To which I would add an addendum suggested by Griffiths L.J. When the garnishee order is made absolute, its wording should be adapted to meet this procedure. Suppose the garnishee order nisi addressed to the bank was to pay debt and costs of Ł1,000, it should not then be absolute in the same form because, if this was done, the order to the bank might order them to pay a greater sum than the attached amount of foreign currency would realise. The order absolute should express the bank's obligation as an obligation to pay the sterling equivalent of the attached amount of currency or the judgment debt and costs whichever be the lesser. This paragraph should therefore be added: (3) In order that the garnishee order absolute should express the obligation of the bank under the foregoing procedure, the bank should inform the court of the amount of foreign currency attached and the rate of exchange used by the bank. When the order is made absolute, it should order the bank to pay the sterling equivalent of the foreign currency attached or the amount of the judgment debt and costs whichever be the lesser."

In Vehicle Wash Systems Pty Ltd v Mark VII Equipment Inc (unreported, 19 December 1997), Finkelstein J considered earlier authorities including Jolley v Mainka (1933) 49 CLR 242 and Vishipco Line v Chase Manhattan Bank NA (1985) 754 F 2d 452, in which it had been held that an action seeking a recovery of foreign currency was not a action in the nature of debt renewal or of debt but an action seeking the recovery of a commodity. Finkelstein J said that those authorities might need to be reconsidered in the light of Miliangos and that there was much to be said for the view that where foreign currency acted as money an action for its recovery should be regarded as action on a debt. In any event, Finkelstein J proceeded upon the footing that a promise to pay money denominated in a foreign currency was a debt for the purpose of s 459E of the Corporations Law. It may therefore be accepted that the sums tending to the credit of the accounts at the National Bank both in this country and in the United States are the proper subject of a s 218 notice unless, in the context of s 218, the sums are not relevantly "money" because they are denoted in foreign currency. Counsel for the Commissioner, Mr AH Slater QC, understandably seized upon the analogy provided by Choice Investments and referred to a number of cases in which the s 218 procedure has been referred to as analogous to or the equivalent of a garnishee proceeding. See eg. F J Bloemen Pty Ltd v Commissioner of Taxation (1981) 147 CLR 360 at 375; Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1 at 19; Huston v Deputy Commissioner of Taxation (1983) 49 ALR 566 at 567; Tricontinental Corporation Ltd v Federal Commissioner of Taxation (1987) 73 ALR 433 at 436-7; Edelsten v Wilcox & Federal Commissioner of Taxation (1988) 83 ALR 99 at 111. However, although the s 218 procedure has analogies with a garnishee process, it is not the same thing. A garnishee proceeding is a form of execution and the proceeding is controlled by the courts. It enables judgment creditors to attach assets, debts due to the judgment debtor and to apply those assets to the payment off of a judgment debt. Therefore, it was entirely consistent with the nature of a garnishee proceeding for the court in Choice Investments to order that the foreign currency debt be attached and then converted into money to pay off the judgment debt. The intent of s 218 is different. Its object is to empower the Commissioner of Taxation to seize money which, when paid to the Commissioner, will pay off in whole or in part a taxation liability due to the Commissioner by a taxpayer. In Payne v Federal Commissioner of Taxation (1936) 55 CLR 158 it was held by the Judicial Committee of the Privy Council, affirming a decision of the High Court of Australia that, whenever the Income Tax Assessment Act 1922 (Cth) referred to "pounds", it referred to units of Australian currency and that the assessable income of a taxpayer must, whether the currency in which he or she derived it be British or foreign currency, always be expressed in terms of Australian currency. This principle was incorporated into the Income Tax Assessment Act 1936 (Cth) and is expressed in s 20(1) which provides: "For all the purposes of this Act, income wherever derived and any expenses wherever incurred shall be expressed in terms of Australian currency." Accordingly, sections such as s 166 of the Income Tax Assessment Act, which provides that the Commissioner may make an assessment of the amount of taxable income of a taxpayer and of the tax payable thereon and s 169 of that Act which provides that where any person is liable to pay tax the Commissioner may make an assessment of the amount of such tax, speak of an assessment of tax expressed in Australian currency. Senior Counsel for the applicant, Mr RA Conti QC, submitted that s 218 speaks of money which is denominated in Australian currency. That is because, it was submitted, the s 218 notice demands payment of an amount which, when received, will pay off the taxation debt. This is made particularly clear by paragraphs (e) and (f) which require the recipient of the money to pay to the Commissioner so much of the money as is sufficient to pay the amount due by the taxpayer or the amount of the money held or due, if it is less than the assessed tax or such an amount as is specified in the notice out of each payment that the person becomes liable to make to the taxpayer until the amount due by the taxpayer in respect of tax is satisfied. It was submitted that s 218 requires that the money of account, that is the tax due by the taxpayer, and the money of payment, that is the amount to be paid by the recipient of the notice, be of the same denomination, Australian currency. This submission is supported by the consideration that s 218 does not provide for judicial supervision of the procedure but rather makes it an offence for a person to refuse or fail to comply with the notice. The act which the recipient of the notice is required to do is to make a payment of or out of the money which is held by the recipient of the notice or which is due by him. As Mason J, with whom Aickin & Wilson JJ agreed, said in Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1 at 17: "It is evident that sub-s (1), when it says that the Commissioner may require a person to pay money to him, is giving statutory backing to that requirement so as to impose an obligation on the recipient to pay money that falls within the statutory description. The section only imposes an obligation to pay in accordance with its terms." At 26, Brennan J said: "The obligation upon the third person is to make with the deemed authority of the taxpayer, a payment to the Commissioner in satisfaction of the taxpayer's liability for tax assessed of money which would, but for the operation of the section, be due to the taxpayer." In this light, the section requires the payment by the recipient of the notice of that which will pay off the taxpayer's debt in whole or in part. The section appears to contemplate that the money which is held or due by the recipient of the notice can be paid over to the Commissioner of Taxation as money, that is to say that the money held or due must be money the payment of which can be received as money by the Commissioner of Taxation. It is not in dispute that the Deputy Commissioner of Taxation does not seek payment of the sums standing to the credit of the subject bank accounts. He does not look upon the United States dollars as money of payment. Mr Slater has acknowledged that what was sought was not the payment of American dollars but the payment of Australian currency. The Deputy Commissioner of Taxation is seeking that the sums be converted into Australian currency and that the proceeds be paid to him. In this circumstance, the Deputy Commissioner of Taxation appears to be looking upon the sums standing to the credit of the National Australia Bank accounts not as money but as assets or commodities which he considers should be sold and the value realised in Australian currency, which should then be paid to him. Because s 218 does not in terms impose any specific obligation on the part of the recipient of a notice to comply with its requirements but gives statutory force to the notice by making it an offence not to comply with the notice, I think the section should be read strictly so that there is a coincidence between that which is demanded under a s 218 notice and that which is held or is due by the recipient of the notice. In other words, the money held or by the recipient of the notice must be money the payment of which to the taxation office will, of itself, pro tanto, discharge the taxpayer's taxation liability. This requires that the money due or held by the recipient of the notice be Australian currency. In Chapter XI of his work, Dr Mann discusses the payment of foreign money obligations and, at 316, supports the principle stated by Mocatta J in Barclays Bank International Ltd v Levin Brothers (Bradford) Ltd [1977] 1 QB 270 where his Lordship said at 277: "I think it is clear that when someone is under an obligation to pay another a sum of money expressed in a foreign currency but to pay it in this country, the person under the obligation has an option, if he is to fulfil his obligation at the date when the money is payable, either to produce the appropriate amount in the foreign currency in question or to pay the equivalent in sterling at the rate of exchange prevailing at the due date. This proposition seems to me to be elementary and a matter of common sense. It is stated in rule 173 of Dicey & Morris, The Conflict of Laws, 9th ed. (1973), p 903: `If a sum of money expressed in a foreign currency is payable in England, it may be paid either in units of the money of account or in sterling at the rate of exchange at which units of the foreign legal tender can, on the day when the money is payable, be bought in London in a recognised and accessible market, irrespective of any official rate of exchange between that currency and sterling.'" As this point was not argued before me, I am content to accept the view expressed by Dr Mann. However, it does not seem to me that the existence of an option in relation to the payment of ordinary commercial monetary obligations assists the interpretation of s 218. For the reasons I have given, I am of the view that, as the taxpayers' obligations under the Income Tax Assessment Act were obligations expressed in Australian currency, the Commissioner's entitlement to make a demand under s 218 was to demand the payment of Australian currency which, when received, would extinguish or reduce the taxpayers' indebtedness. I do not regard the words "as is sufficient" in s 218(1)(e) as bearing upon this issue. They were not included to authorise the conversion of money from one currency to another. They have a perfectly understandable application in relation to s 218 notices which demand the payment of Australian money. Section 218 may be contrasted with s 215, which provides in relation to certain liquidators, receivers and agents that: "(3) Subject to subsection (3B), if the trustee is a person of the kind referred to in paragraph (1)(a) or (b), the trustee: (a) shall not, without the leave of the Commissioner, part with any of the assets of the company until the trustee has been so notified; (b) shall set aside, out of the assets available for payment of ordinary debts of the company, assets to the value of an amount that bears to the value of the assets available for payment of ordinary debts of the company the same proportion as the amount notified by the Commissioner under subsection (2) bears to the sum of: (i) the amount notified by the Commissioner under subsection (2); (ii) any amount of prescribed tax that the Commissioner is required to notify to the trustee under an Act other than this Act and has so notified; and (iii) the aggregate of the ordinary debts of the company (excluding any debt in respect of tax or prescribed tax); and (c) is, to the extent of the value of the assets that the trustee is so required to set aside, liable as trustee to pay the tax."

Section 255 is likewise in different terms. It applies to a person having the receipt, control or disposal of money belonging to a non-resident and provides: "(1) With respect to every person having the receipt control or disposal of money belonging to a non-resident, who derives income, or profits or gains of a capital nature, from a source in Australia or who is a shareholder, debenture holder, or depositor in a company deriving income, or profits or gains of a capital nature, from a source in Australia, the following provisions shall, subject to this Act, apply: ... (b) he is hereby authorized and required to retain from time to time out of any money which comes to him on behalf of the non-resident so much as is sufficient to pay the tax which is or will become due by the non-resident; (c) he is hereby made personally liable for the tax payable by him on behalf of the non-resident to the extent of any amount that he has retained, or should have retained, under paragraph (b); but he shall not be otherwise personally liable for the tax; ..."

Provisions of this type are not replicated in s 218. An alternative view to that which I have expressed is that s 218 provides a process in the nature of a garnishee proceeding and that, once the notice is served on a person who holds money for or by whom money is due to the debtor taxpayer, then the service of the notice attaches the debt and gives the Commissioner of Taxation an interest in the relevant fund. It can be argued that the Commissioner would be entitled to enforce that interest and to require that, if the fund were not in Australian currency, it be converted into Australian currency and paid to the Commissioner. However, I am influenced by the fact that, in Clyne, their Honours laid emphasis not upon a charge or interest but upon the obligation of the recipient of the notice to pay money in accordance with the terms of the notice. It was that obligation which, as Mason J said at 20, gave to the recipient of the notice a defence or set-off against any claims brought against him. Mason J concluded his consideration in these terms at 23: "It [s 218] merely requires the recipient to pay to the Commissioner when they become payable moneys owing to the taxpayer at the date of the notice. The obligation attaches to the recipient on service of the notice, though it cannot be performed until a future date. The effect of imposing the obligation is to make it unlawful for the recipient to pay the moneys to anyone but the Commissioner after service of the notice. Although this might otherwise expose the debtor to liability of the suit of the taxpayer the debtor is protected by s 218(4) which provides that the payment is deemed to be made with the authority of the taxpayer and indemnifies the debtor." Thus, the emphasis was placed upon the obligation imposed by the terms of the notice upon the recipient of the notice to pay in accordance with the requirements of the notice, which obligation conferred a defence against any claim made against the recipient by others. It appears to me to be inconsistent with this analysis for there to be any obligation imposed upon a recipient of the notice to convert that which is not Australian currency into Australian currency and to pay the proceeds to the Commissioner. That is not what the section states or any of the notices demand. I should perhaps add, although the matter was not argued before me, that I tend to the view that the subject 218 notices were invalid for uncertainty in that they did not express what was the obligation which they purported to impose on the recipient of the notice. Was it an obligation to pay over United States dollars? Was it an obligation to pay over Australian currency? If a conversion was to be effected, what was the date on which the conversion was to be made? What was the rate of conversion to be adopted, the rate which the taxpayer could have demanded if seeking conversion on that day or a rate which the National Australia Bank could have demanded having regard to the extent of its dealings. A ground of uncertainty is stated in ss 5(1)(e) & 5(2)(h) of the Administrative Decisions (Judicial Review) Act 1977 (Cth). Aronson and Dyer in their Judicial Review of Administrative Action discuss the issue as to whether "uncertainty" is a common law ground of review and, at p 360, set out a number of cases which have suggested the contrary. I do not propose to deal with this issue in any depth. I tend to the view that the notices were invalid because they did not make it clear to the National Australia Bank what was expected of the Bank. I do not think that a s 218 notice can be supplemented by oral or written explanations subsequently given. The notice must be valid on its face and must express an obligation, the failure to comply with which will be an offence under the Income Tax Assessment Act. If a notice is such that a recipient is uncertain as to what is demanded in order to comply with the notice, then the notice will not impose an obligation and failure to comply with the notice will not be an offence. In the present case, the National Australia Bank held on behalf of or was obliged to pay to the applicants moneys denominated in American dollars. Yet, the notices expressed a sum in Australian dollars and required the National Australia Bank to pay to the Deputy Commissioner of Taxation "so much of that money as is sufficient to pay the [stated amounts of the taxpayer's debts]". In my opinion, those words were unclear as to whether the Deputy Commissioner of Taxation demanded Australian currency or the moneys held or due. It was unclear as to how, if a conversion was to occur, this should be done. The notices were therefore uncertain. I am of the opinion that the subject s 218 notices should be set aside. However, I shall not make any order at the present time. The parties may wish to consider the question of appeal and of possible incidental orders. I shall simply direct the parties to bring in short minutes of the orders which they propose within 14 days. The orders should provide for the payment of the applicants' costs by the Deputy Commissioner of Taxation and should include an appropriate order with respect to the costs of the National Australia Bank Ltd. I need not deal with the issue of unreasonableness which was raised by counsel for the applicants other than to say that, on the material before the Court, I would not conclude that the issue of the notices, if otherwise valid, was a step which no reasonable decision-maker could have decided to take. I certify that this and the preceding thirteen (13) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Davies

Associate: Date: 27 February 1998 Counsel for the First & Second Applicants: RA Conti QC with DKL Raphael

Solicitor for the First Applicants: Blake Dawson Waldron

Counsel for the First Respondent: AH Slater QC with SJ McMillan

Solicitor for the First Respondent: Australian Government Solicitor Solicitor for the Second Respondent: Mallesons Stephen Jaques Date of Hearing: 8 December 1997

Date of Judgment: 27 February 1998

Income Tax Assessment Act 1936(Cth)ss 20(1), 166, 169, 215, 218, 255

At a glance

Court

Decision date

Before

Source

Judgment (10 paragraphs)

Parties

Legislation Cited (7)

Cases Cited (7)

Cited By (1)